Yesterday the NZ Supreme Court handed down its decision in Stiassny and others v Commissioner of Inland Revenue  NZSC 106 where the Court dismissed an appeal against the decision of the Court of Appeal that the claim for a refund of GST by the receivers appointed to the partners in a GST-registered partnership should be struck out.
The case is interesting as it considers the question of whether the receivers of the partners (who were not appointed as receiver to the partnership) were personally liable to pay GST on the sale of partnership property. A similar question may arise under s 58 of the GST Act. Secondly, the case discusses the scope for a claim based on restitution. An outline of the facts and my analysis of the decision of the Court of Appeal can be accessed here.
Were the receivers personally liable for GST?
The Court of Appeal rejected the Commissioner’s contention that the receivers were personally liable for the GST of the partnership. Before the Supreme Court, the Commissioner ran the same argument, being that the provisions of s 57 and s 58 (dealing with the GST consequences of “incapacitated entities”) should be given a construction which was consistent with their purpose, being to make the receivers liable for the GST of the partnership (notwithstanding that the partnership itself was not in receivership).
The Supreme Court rejected the argument for similar reasons to the Court of Appeal – essentially that the argument required words in s 57 to be ignored and additional words to be put into s 58. The decision is another example of the limits of a “purposive” construction to statutory construction.
Can the receivers recover the GST paid?
The first argument of the receivers was that the payment of GST was made by them, rather than by the partnership. This argument was rejected on the basis that the documents lead to the conclusion that it was simply not arguable that the GST payment was made otherwise than from a partnership bank account with funds to which it had title.
The second argument was that because the proceeds held by the receiver were insufficient to discharge the obligations owing by the partnership to secured creditors, those funds were held on bare trust for the secured creditors and, in equity the payment to the Commissioner utilised the property of the secured creditors, which can be recovered. This claim was rejected because of the effect of the introduction of the Personal Property Securities Arrangement regime which gives a creditor priority over a security interest in the funds paid to the creditor.
The third argument was that the payment had been made because of a mistake by the receivers or because they were, in practical terms, compelled to make it. The Supreme Court agreed that the receivers were making a mistake about the law when they wrongly caused the partnership to pay the GST – they wrongly thought they were personally liable for the GST so paid it to protect their personal position. The Supreme Court also observed that it was well-settled that someone who makes a payment acting on a view of the law which a court later declares to be wrong, may be able to recover it. In this context, the basis of the claim was to recover a payment made by mistake to the wrong creditor, to someone who would not have been paid but for the mistake.
The Supreme Court nevertheless found that the third argument failed on restitutionary principles. This is because the partnership did owe the Crown the GST which was paid, therefore the Commissioner gave good consideration in accepting the payment in discharge of the debt. Also, there could be no suggestion that the Commissioner induced the mistake – he made no demand for payment. There was no unjust enrichment to the Crown at the expense of the partnership.